News & Features

Local Leaders Woo Investment

Editorial in The Jakarta Post says good governance and reassuring regional bylaws that can serve as a risk-management tool for investors in a highly complex market economy

By The Jakarta PostThursday, February 25, 2016

Since taking office 16 months ago, President Joko “Jokowi” Widodo, by our count, has more than four times gathered governors, regents and mayors at a forum and drilled into them the importance of private investment. The latest such gathering took place at the State Palace on Monday where the President reiterated the importance of expediting business and investment licenses as part of a concerted effort to stimulate domestic and foreign investment.

This is truly the right approach for building up national support for the government’s development programs. He cannot depend only on his Cabinet to have his policies and programs fully implemented. Without the full support of regional leaders, Jokowi will never be able to push through his policies, however well they are designed.

Strong support from and good coordination with regional administrations is crucial. As a former mayor of Surakarta in Central Java and former governor of Jakarta, Jokowi fully understands the needs of regional administrations and fully realizes their important role in national development, especially after the 2001 launch of regional autonomy.

First of all, regional administrations now account for implementing almost 40 percent of the national budget and are the hosts of both state and private investment projects. They are also responsible for issuing dozens of local licenses required by businesses and investors.

Jokowi’s frequent working visits to the provinces are an effective way of reaching out to regional communities and leaders, promoting to them the vital role of private investment in the generation of jobs. It is private investment, rather than the government, that creates most jobs and in turn generates purchasing power for the most people.

When Chatib Basri was the chief of the Investment Coordinating Board (BKPM) from 2012-2013 he also often emphasized the vital role of regional administrations in wooing investment, pointing out that at his meetings with potential investors they no longer asked about macroeconomic stability, which they could learn from international media and analysts, but about investment prospects and challenges in the various provinces. He even acknowledged that his success in wooing investment to the country depended mainly on regional leaders.

To put it briefly, when it comes to the investment climate, foreign investors no longer look at and analyze simply Indonesia’s country risk profile but also provincial and even regency risk profiles.

Many businesspeople have complained about distortive regulations issued by local administrations in overly zealous bids to immediately raise as much local revenue as possible without realizing that this rent-seeking attitude will sooner or later kill the goose that lays the golden eggs.

The most important element of business-friendly policies and a conducive investment climate is good governance and reassuring regional bylaws that can serve as a risk-management tool for investors in a highly complex market economy. Effective regional bylaws create structures of expectations that allow businesspeople to make reasonably accurate predictions and to manage contingencies and the possible complexities of a market economy.

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